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What of branding and consumer perception of quality and value, how do these affect pricing? Pricing together with selection of channels of distribution, positioning and promotion can affect consumer’s perception. Price is one element of the marketing mix and is used in conjunction rather than in isolation of the other variables of place, promotion and product. Pricing decisions must take into account a range of internal (business and consumer) and external factors detailed in the diagrams shown below. Depending on product and buying behaviour, as consumers we do spend time looking at a range of factors that influence our own assessment of product pricing. Businesses are also influenced by external factors including an understanding of what their customers and consumers think of pricing. Businesses will need to know how their customers interpret prices, for example are prices seen as high, low, premium, or ‘very very’ expensive!
Consumers are protected by legislation such as the Trade Descriptions Act, the Consumer Protection Act and the Fair Trading Act. As we discussed in the session looking at Place, channel member do expect to receive a profit from handling goods. It can be a dangerous watching competitors too closely as you might lose sight of your business and its own competitive advantage. As a little explanation of diagram 3, at Price (P2) the quantity is Q2, as the prices drops the quantity increases (Q1). Internal business factors such as costs and business objectives influence pricing decisions. We have looked at some factors that influence pricing above, but before moving on to discuss methods of setting prices please read the case study on low-cost airlines putting into practice many of the points we shall discuss in this week’s session. Ryanair has confirmed that it plans to charge passengers for use of toilets on its aircraft, meaning spending a penny on a flight will soon cost as much as a pound.
Prior to 1987, air travel within Europe was heavily regulated and was largely the province of the rich. In essence, the national airlines regarded the skies of Europe as their personal property - the exception was private charter flying, which gave rise to the cheap holiday package. All this changed in 1987 when the EU agreed that the skies should be liberalised for any carriers.
This airline operates an effective website, which has served as the pattern for other cheap airlines. The basis of a low cost airline is that the company reduces its costs to an absolute minimum, and does not provide the level of service that a full-fare carrier would provide. The following link is to a blog site, but it does offer up-to-date information on cheap flights including articles on some of the premier carriers such as Lufthansa and British Airways who are both offering very cheap flights. Full cost plus pricing seeks to set a price that takes into account all relevant costs of production. What are the costs of business overheads such as utilities, factory space, rent and staffing?
Direct cost pricing does not include everything as full cost pricing and includes only costs that can be directly traced to producing specific goods or services. For example, the cost of meat in a hamburger can be attributed directly to the cost of manufacturing that product. Direct cost pricing is also useful when trying to price for services such as air flights or hotel accommodation.
Costs are taken into account only when they are directly attributable to the production of a particular product. The point at which the cost of producing a product equals the revenue gained from selling it is called the break even point. The supplier will benchmark themselves against major competition with a choice to sell at the same price as their competitors, above or below.
Some new products from top global brands generate considerable media curiosity before production; remember the interest generated by Apple I-phone?


Rapid penetration - companies that combine low pricing with high promotional expenditure are using a rapid penetration pricing policy. The business is happy to make money later - for example Dell computers are moderately cheap in comparison to their competitors but their add-ons such as inks and printers are not cheap! In the previous section we reviewed pricing strategies for new or pioneer products some of which are mentioned below again, however, in this section we shall look briefly at a few more pricing strategies. Offers a low price to gain good market share and then increases the retail price to meet demand. During the introduction phase of a new product prices will be high, and then reduced as the product is adopted by consumers and competitors launch their own similar products. Marketing-orientated companies need to take account of where the price of a new product fits into its existing product line.
Where multiple segments appear attractive, modified versions of the product should be designed, and priced differently, not according to differences in costs, but in line with the respective values that each target market places on a product. For example the price of buying the Gillette mach Razor is quite reasonable, but to buy the replacement blades a second mortgage is required! To conclude the price of a product or service is the value placed on what is provided by the seller to the buyer. Now try an on-line quiz through the Learn Marketing site on pricing……good luck!
Update the Advanced Search page design to provide more concise and comfortable user experience. Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. Here’s how internal auditors can reduce risks by embedding culture audits into existing audit programs. All of the above and more will be explored in this Week’s session looking at price, one of the marketing mix 4Ps and the only P that generates revenue rather than is a business cost! Prices are perhaps the easiest element of the marketing mix to adjust; products features, channels, and even promotion take more time. Channel members also expect discounts on large orders and prompt payment and expect assistance with promotion and training costs. This doesn’t mean that each time a competitor changes product pricing that a business should follow suit, but as the top UK supermarkets have shown none are slow to shout very loud about who offers the most value at the cheapest price. Customers’ attitudes and responsiveness to price are reflected by economic theories of demand as illustrated. For some products a fall in price leads to a large increase in demand, and the economic term for increase product demand is said to be price elastic. National airlines of European Union member states had developed a highly complex set of agreements about who could fly where, how many seats were allowed on each aircraft, and what fares could be charged.
Prior to 1987, it was often cheaper for a business traveller to buy a package holiday than book a scheduled flight in Europe. Licences were granted to other operators, subject to air traffic control regulations and agreement with the airport concerned. Seat prices are not fixed, but are controlled by demand, using a sophisticated computer system. For example there are no in-flight meals, there are no tickets (all processing is done on the Internet), there are no boarding cards, and seats are unreserved.
The aircraft is tidied quickly, and pilots use radios to talk to ground engineers, rather than leave the cockpit.
They offer the opportunity for people to travel by air, where previously they may have travelled by road, rail or bus. The cost of the product manufacturer, the overheads of the business, fixed and expected, plus costs of channel members and final mark-up to retailer. Other costs, such as depreciation or administrative expenses, are more difficult to assign to a specific product, and so are not considered direct costs. The diagram below shows the relationship between costs, revenue, profits and losses but to calculate the point that the product breaks even a unit price has been previously determined. Here other variables such s product quality and consumer perception will play a part in pricing decisions.
Such as the going rate for bread and newspapers, yet in reality there is always scope to offer something different about a product. There is already a scramble to buy the product before it is launched - if only it could be that easy for all new products?


The high price reaps high rewards in revenue and the high promotion should attract plenty of interest.
As we have seen there is so much more than setting a monetary value for a product, but pricing is relatively easy to control and change if required and don’t forget it is the only revenue-generating variable of the marketing mix.
China's Transfer Pricing MethodologiesThe EIT Law and Circular 2 establish a transfer pricing regime based on the arm’s length principle and state that both enterprises engaged in related party transactions and tax authorities verifying and evaluating related party transactions should follow the arm's length principle in selecting and applying reasonable transfer pricing methods.
Put the pricing too high in comparison with competitor goods and your customers will go to them, but if the pricing is perceived as too cheap then that might have the same effect. Price also communicates to the market the company’s intended value positioning of its product or brand. Does a higher price mean that the customer will go elsewhere or does it equate with quality? Also regulatory bodies such as Ofwat for water and Oftel for the telecommunications industry have been set up to keep a keen watch on pricing and to deal with consumer interests. These will influence the setting of the final consumer or recommended retail price (RRP), channel member costs must be factored into pricing decisions.
All these decisions were made by national airlines in negotiation with each other - so that, for example, Alitalia might not allow British Airways to fly from London to Milan unless Alitalia could be given a route from Rome to Manchester. As demand rises so does the price of the ticket,which means that early booking makes economic sense. There are threats on the horizon too - the EU has recently clamped down on airports offering low cost airlines concessions and air traffic capacity is under serious pressure.
However, pricing adopted at product launch can track in one of two ways, keep the price high or introduce it low. Chapter 4 of Circular 2 contains descriptions and, more importantly, guidance on the application of the reasonable transfer pricing methods for verifying the arm’s length nature of controlled transactions in China.
However where major airlines have been able to compete is on the actual destinations; because low cost carriers tend to use the cheaper regional airports and passengers are often faced with lengthy journeys to get to their final destinations. Meanwhile passengers continue to enjoy low prices, hotels are enjoying increased business and airports are burgeoning as a result of the spending power of passengers coming through their gates.
As stated above there are consumer perceptions of pricing which affect demand plus other assumptions such as advertising and distribution policies, it is not an exact science!
Major airlines also do well with business travellers, because price is not often an issue when the company is paying.
In this instance companies can and do rely on existing consumers to purchase their new products.
Low cost airlines have so far, had little effect on long haul flights, where superior levels of service are a basic requirement due to the length of the flight. 3 There has historically been some ambiguity as to the application of the resale price method and cost plus method under Circular 59 and Circular 143, which were widely applied in a similar fashion as the TNMM in transfer pricing analysis and audits with the operating margin or net cost plus markup (e.g.
However, Circular 2 clarified the calculation method for the resale price method and cost plus method and China's transfer pricing methods are now considered largely equivalent in number and in definition to the transfer pricing methods recommended for use in the OECD Guidelines, therefore providing a greater choice of methods for taxpayers and tax authorities alike.2. Determination of Applicability When selecting a reasonable transfer pricing method, it is necessary to analyze and compare those characteristics of the comparable transactions or comparable enterprises that may affect the application of the arm’s length principle, in order to determine the degree of comparability and any appropriate adjustments. Comparability is the core criteria for determining the applicability of the reasonable transfer pricing methods; however the degree of comparability required will differ among each of the methods. Circular 2 does not indicate a preference towards the transactional or profit-based methods but rather stipulates that a method should be used only if reasonable adjustments can be made for significant differences between the related party transaction and unrelated party transactions that influence the relevant benchmark margins. The OECD Guidelines recommend that enterprises and tax authorities choose the most appropriate transfer pricing method based on the specific circumstances and requirements of each case.
The OECD Guidelines argue that the traditional transaction-based methods are the most direct way to determine whether the commercial and financial relations between associated enterprises are normal, and therefore, traditional transaction-based methods are in theory preferred over profit-based methods.
However, in practice, operational complexities, such as an inability to obtain reliable and sufficient comparable data, result in the more common use of profit-based methods, such as the TNMM.
No matter if traditional transaction-based methods or profit-based methods are applied, the most important thing is to choose the method that provides the most reasonable measure of the arm's length transfer pricing between related parties. In practice, the taxpayer's and the tax authorities' determination of the most appropriate method may differ, thereby resulting in conflict.



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